The No-Fear Guide to Financial Planning in 2014

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Alexa Von Tobel’s epiphany about the importance of personal money management came when she was just a teenager. This was well before she went on to attend Harvard Business School - well before she created LearnVest, one of today’s leading consumer websites for personal financial planning.

She was just 14 when her physician father passed away suddenly – and her mother was thrust into the role of instant financial planner.

As in so many other American households of days gone by, Von Tobel’s parents had divided their parental duties along strict lines: Dad managed the investments and long-term financial planning, Mom ran home and hearth and herded three kids through school, music lessons, sports events and everything else.

Von Tobel’s mother had the whole burden now. “On top of dealing with the most heart-wrenching, soul-shaking news she’d ever received, she had to start dealing with our finances for the first time,” says Von Tobel, whose new book is Financially Fearless: The LearnVest Program for Taking Control of Your Money. Von Tobel recalls hearing her mother fumbling for information on the phone, trying to find out all she could about the financial accounts.

“I vowed that I would never, ever, let that happen to me,” she says.

So, from misfortune and fear, came determination, drive – and the decision to “cut to the chase when it came to money management and learn what I needed to know, why I needed to know it - and how to do it.”

It’s why she threw herself into financial planning. As CEO of LearnVest, she and her team pair clients with certified financial planners so that people of all ages can manage money to their best advantage, no matter their position in life. Her goal is take the emotion and uncertainty out of personal money issues, urging instead common-sense wisdom and smart actions “to protect yourself so you can survive any financial storm.”

Von Tobel shared key insights about getting one’s personal financial affairs in order, particularly as a new year starts. Among her tips:

Run the numbers with an expert so you have the clearest view of your personal situation. This is essential for creating a budget, paying your bills, planning for retirement, and having a little extra to spend on fun. “What is your take home pay? Do you have a 401(k) at work? Does your company match all or part of your contribution to that? What are the unique needs and situations in your life that must be addressed?” While all of this may seem rudimentary, Von Tobel argues that there’s too much stress associated with managing money today partly because people haven’t taken care of the basics from the beginning.

Be sure to have an emergency fund – or what Von Tobel calls a freedom fund. “Money is a tool to help you have a better life. It’s not meant to be worshipped – it’s a means to security. So if you’re single and have no expenses, you need three months’ worth of net income – preferably, everyone should have at least 6 months’ worth,” she says. “If you’re a higher income earner with an MD or an MBA, you need at least 9 months’ worth of net income set aside – it’s harder to replace your job if you lose it.”

The freedom fund, she says, “lets you sleep better at night. Anything can happen – your home could burn down. When you have a family, you have more people who might be impacted. This fund gives you freedom from financial worry.”

Get all of your “docs in a row” as soon as possible. “If you have a child, you need a legal guardian and the papers to prove it,” she says. “The most valuable decisions you make in your life are those that affect your children. God forbid something happens to both parents and you haven’t chosen someone to be in charge of your child. This goes well beyond a will.”

Von Tobel adds the health proxy to those important documents you should have signed, sealed and filed away. “If you don’t name that person, someone else can make health-related decisions about your life. Do you want that?”

Make sure you have health insurance. “Young people today change jobs more often than Americans ever have,” she says. “I can’t tell you how many of them say to me, ‘I don't have health insurance right now.’ I say: ‘OMG.’ Your health is your biggest asset in life. You have to protect it. You need insurance for every minute you are alive. It’s an expense you need to make sure you can cover.”

Bottom line, says Von Tobel: “Very few people are wonderful at managing their money. We’re not taught money management in school. People tend to have their own homespun way of dealing with their finances, when there are formulas for what to do and how to do it. I say, Own your money. Embrace it. Manage it. Let it work for you. Financial planning can and should be done right because it affects our lives so deeply.” - Follow Maureen Mackey on Twitter @maurmack

Managing Editor Maureen Mackey oversees scheduling and work flow and also writes and edits features and reports on a wide array of subjects. She spent more than 20 years as a senior book and features editor at Reader’s Digest.